Most personal interest expenses aren’t deductible for federal tax purposes. However, there are several exceptions worth knowing about. Below are four types of interest expenses that may qualify — including a new deduction introduced under the One Big Beautiful Bill Act (OBBBA), signed into law in 2025.
Mortgage Interest
The most familiar deduction is home mortgage interest. If you itemize deductions, you may be able to deduct interest on mortgage debt used to purchase, build, or improve your primary residence and one additional home. Points paid on your principal residence may also qualify.
The OBBBA permanently set the mortgage debt limit at $750,000 for loans incurred after December 15, 2017. It also expanded the rules to allow mortgage insurance premiums to be deductible as mortgage interest beginning in the 2026 tax year. That means premiums paid in 2025 won’t be deductible until you file your 2026 return.
Auto Loan Interest
A new benefit under the OBBBA allows eligible taxpayers to deduct interest on loans taken out after 2024 to purchase qualifying vehicles. This includes new cars, SUVs, minivans, pickup trucks, vans, and motorcycles under 14,000 pounds.
From 2025 through 2028, you may deduct up to $10,000 annually, subject to requirements and income limits. Vehicles must be assembled in the United States, and the deduction phases out starting at $100,000 of modified adjusted gross income (MAGI) for single filers ($200,000 for joint filers). It is fully phased out at $150,000 ($250,000 for joint filers).
Student Loan Interest
If you’re repaying student loans, you may be eligible to deduct up to $2,500 in interest each year. You don’t need to itemize to claim this deduction, but the loan must be a qualified education loan used for tuition, housing, or related expenses at eligible institutions. Graduate programs may also qualify.
For 2025, the deduction begins to phase out at $85,000 MAGI for single filers ($175,000 for joint filers) and is unavailable once MAGI exceeds $100,000 ($205,000 for joint filers). Married taxpayers must file jointly, and dependents cannot claim this deduction.
Investment Interest
Investment interest — such as interest on margin debt used to buy securities — may be deductible. However, interest on debt used to purchase tax‑exempt investments (like municipal bonds) is not.
The deduction is limited to your net investment income, which generally includes taxable interest, nonqualified dividends, and net short‑term capital gains, reduced by investment expenses. Qualified dividends and long‑term capital gains are excluded unless you elect to treat them as taxable at higher rates. Any disallowed interest can be carried forward to future years.
Conclusion
If you’re unsure whether you qualify for these deductions on your 2025 return, consult a tax professional. Planning ahead could help maximize your benefits when filing in 2026.